Dollar on the back foot

The dollar is on the back foot this morning with the euro and sterling strengthening to $1.13 and $1.25 respectively against the US currency (they ended last week below $1.12 and under $1.24), which leaves the euro-pound rate still hovering above the 90p level. Both US and European stocks made modest gains yesterday (Europe has given up these at the start of play today though), while core bond yields were largely unchanged

The Composite PMI for the Euro Area rose for a second consecutive month in June, albeit at 47.5 still below the 50 expansion-contraction threshold, with Markit (who compiles the PMIs) noting that “while second quarter GDP is still likely to have dropped at an unprecedented rate, the rise in the PMI adds to expectations that the lifting of lockdown restrictions will help bring the downturn to an end as we head into the summer.

In the UK, the Composite PMI also rose again in June but remained below the 50 mark (at 47.6), with Markit observing that the data “add to signs that the economy looks likely to return to growth in the third quarter, especially given the further planned easing of the lockdown from 4th July”

ECB Chief Economist Philip Lane has sounded a note of caution about the path ahead for the Euro Area economy (and perhaps for other economies too), saying that “while the unlocking of the economy is likely to be associated with a substantial improvement in a variety of near-term growth indicators, the scale of the contraction has been so large that overall activity will remain far below the pre-crisis level and the scale of the initial rebound in these weeks won’t necessarily be a good guide to the speed and robustness of the recovery”

It is quiet on the data front today with the IFO Index of the German Business Climate the only release of note, while the IMF publishes an update of the World Economic Outlook